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Living Rationally Under the Volcano? Heavy Drinking and Smoking Among the Elderly

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  • Peter Arcidiacono, Holger Sieg, Frank Sloan

Abstract

Most rational addiction models focus on how drinking and smoking are made when young. Yet, the costs of drinking and smoking generally come later in life. We focus on the decisions of the elderly where individuals know their propensity for addiction but are uncertain about their future earnings and helath status. Using data from the Health and Retirement Survey, we estimate a dynamic stochastic model of heavy drinking and smoking of the elderly. Individuals make decisions not only based upon the current effects of heavy drinking and smoking, but also the future effects of drinking and smoking on earnings, health, and mortality. We are especially interested in the identification of the discount factor. We show how the likelihood function varies with the discount factor and also how behavior decisions vary from not estimating a dyanmic model. In particular, we find that the dynamic model forecasts more drinking and smoking as well as individuals living longer. This is because individuals know when, and when not to, engage in heavy drinking and smoking behavior.

Suggested Citation

  • Peter Arcidiacono, Holger Sieg, Frank Sloan, 2001. "Living Rationally Under the Volcano? Heavy Drinking and Smoking Among the Elderly," Computing in Economics and Finance 2001 207, Society for Computational Economics.
  • Handle: RePEc:sce:scecf1:207
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    File URL: http://www.econ.duke.edu/~psarcidi/volcano.pdf
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    Cited by:

    1. Mark Coppejans & Donna Gilleskie & Holger Sieg & Koleman Strumpf, "undated". "Consumer Demand under Price Uncertainty: Empirical Evidence from the Market for Cigarettes," GSIA Working Papers 2006-E43, Carnegie Mellon University, Tepper School of Business.
    2. Timothy J. Halliday, 2008. "Heterogeneity, state dependence and health," Econometrics Journal, Royal Economic Society, vol. 11(3), pages 499-516, November.

    More about this item

    Keywords

    rational addition; dynamic discrete choice; economics of the elderly;

    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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